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April,
2005

Christopher McCalla updates retailers on changing RTDA legislative efforts at the recent Tobacconists Association of America (TAA) annual convention in Point Clear, Alabama.
Retail Tobacco Dealers of America:
Legal Battles Call for New Script

The first RTDA legislative director hits the ground running.

By Joseph Finora

Thinker and physicist Sir Isaac Newton once taught that for every action there's an equal and opposite reaction. It's hard to imagine that his theory would one day wind itself into the current battles facing tobacco retailers, but that's what's happening in Washington, D.C. today as organizations like the Retail Tobacco Dealers of America (RTDA) and the Cigar Association of America (CAA) begin organizing to help turn the tide against what's so far been a very difficult battle opposing smoking bans, new taxes, counterfeiting, and a general negative perception about the tobacco industry.

In early 2005 Christopher McCalla started his new job as legislative director at the RTDA's national headquarters in Cockeysville, Md. A former journalist and Birmingham, Ala., native, McCalla was working as a writer and editor in Los Angeles when the opportunity to move back east and get into the eye of the tobacco legislation storm came his way. A professional communicator accustomed to working under deadlines, McCalla has hit the ground running. Since moving into his office under the watchful eye of RTDA executive director Joe Rowe, McCalla has been churning out press releases, informing media, briefing elected officials on local, state and federal levels, manning the booth at trade shows, and speaking with retailers and manufacturers every chance he gets. No wonder he starts his work day at 7:45-8:00a.m. answering e-mails and pouring through the day's relevant legislative news.

"We're constantly building awareness of tobacco issues," says McCalla from the RTDA's home office. "My days never end and that's how I like it." At the top of the agenda are: tax issues, smoking bans, opposing counterfeiters, and organizing retailers and smokers. RTDA membership includes some 2,000 retailers and 350 product manufacturers.

"Many tobacconists feel there's nothing they can do," says McCalla. "I'm here to convince them otherwise."

Legislative fights are in McCalla's blood, in fact: his great, great, great grandfather, Joe Hart, was a delegate from New Jersey to the Second Continental Congress, and signed the Declaration of Independence.

McCalla recalls an exchange he had with a Los Angeles-based tobacconist before accepting his current position. "I told him, 'It's government by the people, for the people.' He disagreed. But I suspect the tide is turning."

While things may be changing thanks in no small way to the RTDA's efforts, legislative battles have forced McCalla to lend his time and energy to skirmishes across the country.

On the bright side, in Oregon, Washington, and Montana, legislators recently agreed to cap a tax for Other Tobacco Products (OTP) at 50 cents per cigar. As a result, cigar-tax revenue in those states has increased, according to McCalla, who also works in cooperation with similar-minded organizations like the Cigar Association of America, a non-profit organization that provides government-relations services for the cigar industry.

Washington State currently has the highest OTP tax rate in the nation at 129.42% of the wholesale price. This tax is paid by retailers on their wholesale purchases and is generally passed on to the consumer in the form of higher prices. The CAA worked to get legislation introduced in the Washington State Legislature to reduce the rate to 75% with a 50-cent-per cigar cap on each cigar. When the tax is applied per cigar, and the percentage exceeds the 50-cent threshold, the tax remains at 50 cents. This works to a greater advantage for premium vs. machine-made cigars. In 2003, there were 4 billion machine-made cigars sold in the U.S. and only 275 million premium cigars (premium as defined by CAA as being completely hand-made selling for $1 or more).

Tobacco Legislation Tracking Now Availalable Free at rtda.org
In March, the RTDA relocated the interactive "Tobacco Legislation" section of its website from the members-only section (a password-protected area limited to RTDA members) to the public section. The move allows RTDA members to access critical information on "potentially industry crippling legislation" without logging in with a username and password. But it also extends the access of these resources to the entire industry at large - from manufacturers, wholesalers, distributors, retailers, and even to concerned citizens.

"We encourage [retailers] to share this information with your customers so they too may defend their rights for the leisure and pleasure of premium tobacco products," said RTDA legislative director Chris McCalla. Visitors can see listings of key tobacco legislation in each state, look up legislators, and view tips on how to contact them effectively.

The national legislative agenda is full of challenges as anti-smoking organizations and budget-pressed municipalities are coming up with increasingly clever ways to grow the tobacco-tax base. In New York State, a bill introduced in Jan. 2005 (A 175) is under consideration restricting smoking in private passenger cars, trucks, and vans when minors under the age of 16 are present. Penalties start at $500 for a first offense, rising to $1,000 for a second offense, and up to $1,500 and/or ten days in jail for a third or subsequent offense. In Minnesota, a bill named the Freedom to Breathe Act of 2005 prohibits smoking in all public areas including restaurants and bars. Retail tobacco shops are currently not listed as exemptions in this proposed legislation. Connecticut legislators, while claiming they do not wish to further burden taxpayers, have proposed a 350% OTP tax increase, thus targeting a smaller group to close general budget gaps.

"Governments need a reasonable amount of tax," agrees McCalla. "But from the tobacconists' perspective, taxes are getting excessive."

Noting that excessive taxation can be detrimental to business and the very government it's designed to help, the RTDA's communication efforts have been firing on all cylinders. Its website (www.rtda.org) now offers public access where visitors can learn about bills currently pending in state capitols and Washington, D.C. As of April 4, 2005, there were 71 proposed tobacco bills in 28 State Legislatures and one in the U.S. Congress. There's an "Issues Link," as well as a connection for site visitors to sign on and automatically receive an "alert" when action is requested, plus a "Tell-a-Friend" feature so concerned smokers and tobacconists can help spread the word. It also helps site visitors identify legislators in their home states so they may directly contact them.

McCalla, who describes retailer organization so far as "grass roots," says the reception he's largely been getting from elected officials has been non-partisan. "They've generally been very straight-forward and want to be informed. They've demonstrated no bias either way."

McCalla recalls that in one instance some 200 people attended a smoking-ban hearing where participants were given very limited time to present their cases. "People were getting emotional," says McCalla, who strives to maintain a business-like demeanor in RTDA activity. "The legislators kept it moving and professional."

"We put up a good fight, We're good at fighting together, especially when we're organized," says McCalla, referring to the RTDA membership. "There's very little animosity among members. But if we don't act, it will be interpreted to mean we don't care."

His approach may be working. This spring, the RTDA helped defeat two smoking bans in Maryland, one of which would have made "cigar nights" illegal in that state. Ten retailers testified in this instance, including one who owns five stores in the state. Like the others, he emphasized projected lost revenue from a sales decrease and how that could force him to lay-off some of his 20-30 employees. Even a tiny layoff could have negative ramifications. Each individual that loses a job may then require government assistance, less employment tax would be paid and fewer goods and services purchased. In Maryland, cigar and pipe smokers could also easily drive to neighboring Virginia and the District of Columbia to make purchases as Virginia's OTP tax rate is only 10% and D.C. has none. Additionally, in the course of 10 days, some 2,500 voter/smokers signed petitions left in about ten smoke shops opposing the proposed legislation. Cigars, being a leisure product, generally do not have the addictive culture normally associated with cigarettes. And like pipe smokers, cigar smokers represent a relatively high income and sophisticated demographic - one that resents too much government regulation and taxation, generally is already paying a high income tax, and is only now beginning to fight back in some organized fashion.

"Less tax enables businesses to be more competitive, which increases revenue," notes McCalla. "We're taxpayers too. It's important we take action."

War on the Web
Internet retailers (e-tailers) are also playing a hand in influencing states' focus on their various tobacco taxes. In Nebraska, McCalla points out a retailer cannot ship Internet-sold orders to smokers in that state. "This is unfair to consumers in remote locations by limiting their choices."

And while Internet sales of tobacco products are regularly under scrutiny, instituting a ban on such sales would most likely drive out-of-state shoppers to make their purchases via telephone or mail order. And while major credit card companies have recently announced that they will no longer accept Internet orders for tobacco products, it remains to be seen how this will work in practice. How will credit card companies distinguish between other non-tobacco products, such as lighters and cutters, sold by the same companies selling cigars and cigarettes? And if people can't order over the Internet, will they still be able to put a check or money order in the mail, just as they did in the days before on-line shopping existed, so the credit card company, like many municipalities, then loses that tobacco-related revenue?

Bans and overly dramatic taxation can inadvertently foster a counterculture intent on beating the system of the very revenue on which it depends. This is a situation similar to the days of Prohibition, which according to sociologists, gave birth to organized crime, which was largely fueled by dealing in contraband alcohol in its early days.

"There's a Prohibition analogy here," agrees McCalla, who notes that counterfeiting tobacco products and other means of beating the tax system have been on the rise. In Cleveland last March, two distributors were fined with handling counterfeit cigarettes. Some 2,600 cartons made by a Florida company were seized. "The ruling should underscore the gravity of the issue of cigarette counterfeiting in this country," said Ronald Milstein, vice president, general counsel of Lorillard Tobacco Co., in Greensboro, N.C. Counterfeiting cases are currently pending in 10 states.

Counterfeiting may have other ramifications that go far beyond a loss of revenue. "Reports out of Washington show illegal cigarettes as a funding source for some that have been tied to terrorist organizations," state Sen. Mike Haridopolos told the St. Petersburg Times in March.

The reaction against all friends of tobacco has been strong, perhaps too strong by many standards, but as Newton also understood, our universe constantly changes.

"We're just getting started," says McCalla. "There's a lot we can do together."

Retail Tobacco Dealers of America (RTDA), 12 Galloway Avenue, Suite 1B, Cockeysville, MD 21030, Tel: (410) 628-1674, Fax: (410) 628-167, Email: info@rtda.org, Web: www.rtda.org.



SMOKESHOP - April, 2005